Applicability of the SME Tax Incentive under Decree No. 20/2026/ND-CP to Foreign-Invested Enterprises
2026/08/06
- I-GLOCAL.CO.,LTD Ho Chi Minh Office
- Nguyen Duc Son
Executive Summary
① Policy overview — Resolution No. 198/2025/QH15 and Decree No. 20/2026/ND-CP grant newly established SMEs a three-year corporate income tax (CIT) exemption from the first issuance of the enterprise registration certificate, but whether FDI enterprises qualify is not clearly specified.
② Legal basis and exclusions — The three-year exemption runs consecutively from the first registration year (Resolution Art. 10.4; Decree Art. 7.3(a)); it does not apply to enterprises newly formed through reorganization, or where the legal representative, a general partner, or the largest contributor was involved in an operating enterprise or one dissolved less than 12 months earlier (Art. 7.3(b)).
③ Two interpretations on scope — (①) the Resolution targets the domestic private economy, so FDI enterprises may be excluded; (②) no provision expressly excludes FDI, so qualifying FDI SMEs may also apply.
④ Risk and response — If the tax authorities treat the policy as domestic-only, applying it exposes FDI enterprises to back-tax, late-payment interest, and penalties; since early-stage CIT is often small and filing obligations remain, enterprises should weigh applying now against awaiting official guidance and offsetting via a supplementary declaration.
Introduction
On May 17, 2025, the National Assembly promulgated Resolution No. 198/2025/QH15, which aims to promote the development of the private economy. This Resolution is an important policy intended to enhance the competitiveness of Vietnamese enterprises, and of small and medium-sized enterprises (SMEs) in particular; as the instrument setting out the specific method of its application, Decree No. 20/2026/ND-CP dated January 15, 2026 was promulgated. However, points of uncertainty remain, particularly as to whether it applies to foreign-invested enterprises (FDI enterprises). This article organizes the relevant laws and regulations and explains the potential risks for FDI enterprises in applying the tax incentive in question.
1. Legal Grounds for the Three-Year Tax Exemption
1-1 Provisions of Resolution No. 198/2025/QH15 dated May 17, 2025
Resolution No. 198/2025/QH15 of the National Assembly dated May 17, 2025 provides as follows.
Article 10 Support relating to taxes, fees, and charges
4．For small and medium-sized enterprises, corporate income tax shall be exempted for three years counting from the date of first issuance of the enterprise registration certificate.
1-2 Provisions of Decree No. 20/2026/ND-CP dated January 15, 2026
Decree No. 20/2026/ND-CP dated January 15, 2026 sets out detailed guidance for the implementation of the above Resolution No. 198/2025/QH15, and provides as follows.
“Article 7 Exemption from and reduction of corporate income tax
3．Small and medium-sized enterprises registering their business for the first time
a) Corporate income tax shall be exempted for three years from the date on which the enterprise registration certificate is first issued. The exemption period is calculated consecutively from the first year in which the enterprise registration certificate is first issued. Where an enterprise received its enterprise registration certificate before the effective date of Resolution No. 198/2025/QH15 and part of the incentive period remains, the incentive under this clause may be applied to that remaining period.
b) The incentive provided in this clause shall not apply in the following cases:
b1) Enterprises newly established through merger, consolidation, division, spin-off, change of owner, or change of enterprise form;
b2) Where the legal representative (except a legal representative who is not a capital contributor), a general partner, or the person with the highest capital contribution ratio of the newly established enterprise was engaged in business activities, in any of the above capacities, at an enterprise that is currently in operation or at an enterprise for which fewer than 12 months have elapsed from the time of dissolution of the former enterprise to the time of establishment of the newly established enterprise.”
* For the detailed definition of SMEs, please refer to Decree No. 80/2021/ND-CP.
２.Scope of Application
In light of the above provisions, there is no clear provision indicating whether FDI enterprises are included among those to which this policy applies. Resolution No. 198/2025/QH15 was enacted primarily for the purpose of developing the domestic private economy, and the wording used in the Resolution likewise relates mainly to the private economy. Decree No. 20/2026/ND-CP, too, at present contains no clear provision as to whether it applies to FDI enterprises.
Two main interpretations are conceivable as to the scope of application of these provisions.
Interpretation ①: Resolution No. 198/2025/QH15 was enacted against the policy background of promoting the development of the domestic private economy. Moreover, in the public communications explaining the policy, the principal purpose is placed on supporting domestic enterprises.
On the other hand, FDI enterprises are generally classified as enterprises holding foreign investment capital, and may be interpreted as not fully coinciding with the concept of the “private economy.” On such an interpretation, FDI enterprises may be judged to fall outside the scope of the three-year corporate income tax exemption.
Interpretation ②: Under the current laws and regulations, there is no provision that clearly excludes FDI enterprises from the scope of application. A newly established FDI enterprise is a legal entity established under Vietnamese law, and, where it meets the criteria for an SME, it may be interpreted that it can fall within the scope of the incentive.
On this interpretation, an FDI enterprise that meets the conditions may also be able to apply the three-year corporate income tax exemption.
3.Risks and Response Approaches
Where an FDI enterprise applies the three-year corporate income tax exemption under Resolution No. 198/2025/QH15, a certain degree of risk arising from differences in policy interpretation is considered to exist. If the tax authorities take the view that the policy applies only to Vietnamese domestic enterprises, the enterprise may be subject to additional payment of corporate income tax, payment of late-payment interest, and administrative penalties under other tax-related regulations.
For a newly established FDI enterprise, the following two response approaches are conceivable.
・While taking into account the risk that the tax authorities may adopt a different interpretation in the future, apply the incentive where the enterprise meets the requirements for a newly established SME.
・For the time being, do not apply the three-year exemption, and await official guidance from the government or the tax authorities as to whether FDI enterprises fall within the scope of the incentive. If an official view is subsequently expressed to the effect that they are within scope, a supplementary declaration can then be filed, making it possible to offset the tax already paid against future tax amounts.
Conclusion
From the perspective of an FDI enterprise that qualifies as an SME, this incentive may carry greater risk than benefit. In particular, in the early period after establishment, the amount of corporate income tax itself is often not that large, so the actual effect of the exemption in reducing the tax burden may be limited. Moreover, even where the exemption is applied, the obligations to file tax declarations and reports are not waived.
Therefore, it is important for FDI enterprises to consider carefully whether this policy applies to them, and to continually monitor future additional guidance and interpretive notices.
References
・Resolution No. 198/2025/QH15 dated May 17, 2025
・Decree No. 20/2026/ND-CP dated January 15, 2026
・Decree No. 80/2021/ND-CP dated August 26, 2021
Related Reports
・Overview of Vietnamese Corporate Tax and Key Points of Legal Amendments
